REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for May 2020 and Approve the Related Budget Amendments [Council Pillar: Enhance Community Engagement and Transparency]
Report
BACKGROUND
In compliance with the Charter of the City of Santa Clara and the adopted Investment Policy, the following reports for May 2020 are submitted for your information. The financial review as of May 31, 2020 provides a year-to-date financial update to the City Council for the current fiscal year. Analysis of the revenues collected and all expenditures through May 31, 2020 measures the level of adherence to the established resource allocation plan and allows the City to monitor and project revenues and expenditures throughout the year.
The Adopted Budget incorporates the estimated revenues and planned expenditures for all funds. The attached Financial Status Report provides the budget to actual revenue and expenditure summaries for the General Fund, Special Revenue Funds and Enterprise Operating Funds, as well as expenditure summary for Capital Improvement Funds and Fund Reserve Balances. Any significant variances are explained in the report.
In accordance with City Council Policy 051 - Donations to the City, included in this report is a monthly activity and annual summary of donations received by department. Although the requirement of the policy is to report quarterly, in its ongoing effort to streamline reporting, the City will include this information monthly in the financial status report.
DISCUSSION
Monthly Financial Status Report (Attachment 1)
The attached report summarizes the City’s financial performances as of May 31, 2020. Financial analysis for the report is provided for the General Fund, select Special Revenue Funds, Enterprise Operating Funds, and Capital Improvement Funds.
With 11 months or 91.7% of the fiscal year complete, General Fund revenues are trending below budget at 84.2% due to the change in budgeting methodology, moving the City from a cash basis to a modified accrual basis, as well as the negative impacts associated with COVID-19. General Fund expenditures are at 84.5% of budget and are expected to end the year with savings. Total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) are at 88.6% while total expenses are at 98.1%.
In the month of May, the City received $100,225 in donations, bringing the year-to-date donations total to $264,109.
The COVID-19 response and the current economic downturn are significantly impacting the City’s revenue collections, particularly transient occupancy tax, sales tax, and fees for services and classes. On a national level, economic conditions have worsened in a very short period of time and many economists are now projecting one of the worst recessions in generations. In May, the U.S. unemployment rate remained high at 13.3% (due to classification issues, the Bureau of Labor Statistics has indicated that this figure is understated by approximately three percentage points). Significant impacts are also expected on the State and local level. After the largest monthly drop in State history in April 2020, the California unemployment rate of 16.3% in May 2020 was slightly below the revised April unemployment rate of 16.4%. The unadjusted unemployment rate in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 11.2% in May 2020, down from a revised 12.0% in April 2020 and significantly higher than the May 2019 level of 2.2%. The State of California as well as many local jurisdictions are addressing significant projected shortfalls as part of the budget processes for FY 2020/21.
Based on the available data, revenues are tracking to end the year $10 million to $15 million below the budget, which will be partially offset by expenditure savings in FY 2019/20. In FY 2020/21, a General Fund shortfall of almost $23 million is projected as presented in the FY 2020/21 and FY 2021/22 Biennial Capital Budget. In response to this projected drop in revenues, several cost savings/budget balancing measures were implemented April 1, 2020 to generate current year savings as well as savings that will be used in FY 2020/21 and in the development of the FY 2021/22 and FY 2022/23 Biennial Operating Budget. These actions include a hiring freeze and controls around overtime, as-needed staff, marketing, travel, technology and vehicle purchases.
While actions are being taken to reduce the General Fund impact in FY 2019/20, the General Fund may end the year in a negative position and, in that case, would have to draw on the Budget Stabilization Reserve to balance the budget in 2019/20. The City currently has $57 million in this reserve to address any negative balance after factoring in the FY 2020/21 Adopted Budget actions which drew on these reserves as an interim strategy to present a balanced budget on July 1. Final FY 2019/20 performance and the resulting impact to the reserve will be brought forward in late summer/fall 2020 upon the reconciliation of year-end activities. Further discussion is included in Attachment 1.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of May 31, 2020 were in compliance with the City’s Investment Policy Statement regarding current market strategy and long-term goals and objectives. All securities held are rated “A” or higher by two nationally recognized rating agencies. There is adequate cash flow and maturity of investments to meet the City’s needs for the next six months.
The City’s investment strategy for May 2020 was to invest funds not required to meet current obligations, in securities listed in the prevailing Investment Policy Statement, with maturities not to exceed five years form the date of purchase. This strategy ensures safety of the City’s funds, provides liquidity to meet the City’s cash needs, and earns a reasonable portfolio return of 1.71%.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
Approval of the FY 2020/21 Budget Amendments included in Attachment 3 is recommended in this report. From time to time, adjustments to the budget are required to reflect new information, align budgets with actual revenues and expenses, and correct for inadvertent errors. As stated below and in Attachment 3, a transfer of $20,000 from the Convention Center Enterprise Fund to the City Manager’s Office is necessary to provide additional resources for the Small Business Assistance Program. The Operating Grant Trust Fund line item refers to the funds received from the State of California under the CARES Act to be used towards homelessness, public health, public safety, and other services relating to the COVID-19 emergency. This item also includes additional donations received from the Mission City Community Fund for the City’s food distribution program.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
RECOMMENDATION
Recommendation
Note and file the Monthly Financial Status and Investment Reports for May 2020 as presented and Approve Related Budget Amendments.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Monthly Financial Status Report May 2020
2. Monthly Investment Report May 2020
3. FY 2020/21 Budget Amendments